The window-dressing is perfect. Over-zealous executives of property developers, as well as banks and housing finance companies (HFCs), are falling all over one another to vie for your attention in the biggest festive season of the year. Several banks have already decided to put off raising their base rates to avoid losing prospective buyers. However, shut out the cheerful chatter and make sure that you don't get carried away by the promotional offers of getting the moon to your balcony. Take some time off and talk to your friends and gym buddies and you will soon get to know that many people fall prey to such promotional offers every year in search of an auspicious date. Here's how you can avoid such misadventures.

Avoid Teasers:

After floating, teaser is the new term that has entered the lexicon of home hunters. Banks hate to use the term 'teaser rate' and prefer to call such loans special schemes, but you have to be careful about these special offerings. These schemes, typically offer the fixed interest rate (slightly lower than the prevailing market rate) during the initial years, say, two or three years. The rate may get linked to market rates once the initial honeymoon period is over.

While the 'special' rates could indeed ensure huge savings on your equated monthly instalment (EMI) outgo in the first few years, be prepared to shell out more once the market-linked rates kick in later. Remember, a housing loan has a lengthy repayment period and if an increase in rates pushes up your EMI to unmanageable levels, you could land yourself in a debt trap. The scoop: Don't take long-term decisions merely on the basis of prevailing attractive interest rates.

Switch To The Base Rate:

This one's applicable to old, or existing, borrowers with floating rate loans who, for years, have been crying themselves hoarse about the step-motherly treatment meted out to them. In the past, there have been complaints that banks resist passing on the benefits of a benign interest rate regime to existing borrowers, but they don't hesitate to lure new borrowers with lower rates. The banks, however, never hesitate from raising rates for the old borrowers when the interest rates in the system inch upwards.

As an antidote for these problems, the Reserve Bank of India (RBI) came up with the base rate mechanism aimed at bringing in more transparent loan pricing and consequently, a fair treatment to existing borrowers. Under the new regime, which replaced the benchmark prime lending rate (BPLR) system from July 1, banks are required to review their base rates at least once every quarter and ensure that any changes made are passed on to all classes of borrowers. Existing borrowers can choose to switch over to the base rate and the bank cannot levy any charges for facilitating the transfer.

While it remains to be seen if the new mechanism yields the desired results, many feel it is likely to fare better than the present system. "Some banks are yet to arrive at the rate linked to the base rate for existing borrowers or have not communicated with the branches in that regard. However, those borrowers who have a choice should certainly look at switching over to the base rate," says VN Kulkarni, chief counsellor with the Bank of India-supported Abhay Credit Counselling Centre.

Don't Borrow Beyond Means:

This will perhaps rank as the most common mistake made by over-enthusiastic home seekers. Since a house is considered a prized asset, which is likely to be a once-in-a-lifetime purchase, many feel that overshooting the budget is justified. As a result, they tend to go for a three-BHK when their pocket permits only a two-BHK. Similarly, those constructing their house often stretch their budget to include luxury bathroom fittings, flooring or attractive false ceilings, which inflate the required loan amount. They often forget that once the EMI payments commence, the additional room or the plethora of amenities will turn out to be sources of uneasiness rather than providing any comfort to the home-owners.

Source: The Economic Times